Refiner Delek U.S. Holdings Inc said it had agreed to buy the shares of Alon USA Energy Inc it does not already own for $464 million to increase its exposure to cheap crude produced in Texas's prolific Permian basin.
The combined company, with an enterprise value of about $2.8 billion, will focus on the Permian basin with its refining system having access to about 207,000 barrels per day of Permian crude.
"We believe that the Permian Basin remains one of the more attractive basins for producers, and as production grows, it should continue to provide cost advantaged crude for us in the future," Chief Operating Officer Fred Green said on a conference call.
Delek on Tuesday offered 0.504 of its shares for each outstanding share of Alon USA, valuing the company at about $868 million.
The company, which holds about 47 percent of Alon USA, had offered 0.44 of its shares in October.
Based on Delek's closing price of $24.07, the offer works out to $12.13 per share, a 6.6 percent premium to Alon USA's Friday close.
Alon shares were up 8.1 percent at $12.30 in afternoon trading on Tuesday. They had risen more than 32 percent since Delek's offer in October.
"Given the substantial growth potential from the prolific Permian basin, the combined company's ability to source nearly 70 percent of its throughput capacity from the region represents an attractive long-term competitive advantage," Raymond James analyst Justin Jenkins wrote in a note.
Delek said it expects the combined company to achieve cost savings of $85-$105 million and the deal to add to earnings on a per share basis in 2018.
Delek will assume $152 million of Alon's net debt and also pay $59 million for a non-controlling interest in Alon USA Partners LP, which owns and operates a refinery in Big Spring, Texas.
Shares of Delek, which also announced a $150 million share repurchase program with no expiration date, rose as much as 5 percent to a hit a more than one-year high of $25.27.
The deal is expected to close in the first half of 2017.
(Reporting by Swetha Gopinath and Arathy S Nair in Bengaluru; Editing by Maju Samuel and Shounak Dasgupta)